My work seeks to understand two core research questions about the Chinese economy. The first addresses the economics of intergenerational mobility and child development in China. The second aims to understand the role of firms in labor market inequality. Most papers in intergenerational mobility literature use data to estimate the extent of intergenerational income elasticities in different countries; however, the research on this topic about China is limited. My work on this stream of literature comprises two papers which are included in Chapter 1 and Chapter 2 in this thesis. In Chapter 1, I utilize the one-child policy as a natural experiment to study the impact of fertility on intergenerational mobility. In a simple human capital investment model incorporating fertility and...[ Read more ]

My work seeks to understand two core research questions about the Chinese economy. The first addresses the economics of intergenerational mobility and child development in China. The second aims to understand the role of firms in labor market inequality. Most papers in intergenerational mobility literature use data to estimate the extent of intergenerational income elasticities in different countries; however, the research on this topic about China is limited. My work on this stream of literature comprises two papers which are included in Chapter 1 and Chapter 2 in this thesis. In Chapter 1, I utilize the one-child policy as a natural experiment to study the impact of fertility on intergenerational mobility. In a simple human capital investment model incorporating fertility and credit constraints, I show that the fertility decline narrows the educational attainment gap between children from credit-constrained families and non-credit-constrained families, thus increasing intergenerational mobility. Estimation results using the instrumental variables method show that lower fertility increases intergenerational mobility, which is consistent with the theoretical prediction.

In Chapter 2, we use a unique long panel data from the Gansu Survey of Children and Families to explore intergenerational mobility in rural China and to examine the role of cognitive skill, noncognitive skill, and health as intergenerational transmission channels. This paper find that intergenerational income elasticity is low in rural areas, and cognitive skill plays the most important role in the intergenerational transmission of both income and education. Healths role is modest, and noncognitive skill plays only a minor role as a channel.

The papers mentioned above use various household factors and household investment models to explain income inequality; moreover, firms might also play a role. Workers with the same attributes might earn different wages at different firms. To understand this phenomenon, I explore rent sharing in China’s labor market. Specifically, in Chapter 3, I use a unique matched employer-employee survey data in China to examine the impact of firm profitability or productivity on the employees’ wages. To address the endogeneity of firm profitability, I use the firm’s innovation and industry mean value in other cities as instrumental variables for firm profitability, as Van Reenen (1996) and Card et al. (2013). The empirical result shows that the impact of firms on the wages of workers is small but significantly positive within the manufacturing industry. Rent sharing elasticities are different across different types of firms and different groups of workers.

A unifying thread throughout my research is my attempt to better understand the various sources of human inequality. This inequality starts from the very beginning, such that children from different families receive different investment at various growth stages and, hence, turn out to have different labor market outcomes. Even if they enter the labor market with the same educational background or ability, the specific firm they work for might also generate a wage dispersion among the workers.